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Consumer Price Index Essay

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CPI is an indicator of change in price of goods and services that households consume. An increase in CPI means the increase in the basket price which becomes the cause of Price inflation and in decrease in the price in CPI leads to price deflation. An increase in CPI is deemed as a good indicator of economic growth as it shows that consumers are able to pay higher price than before. It also helps of improving a good standard of living. But an increase in CPI has some adverse effect on economic as well as social environment of a country. This paper aims studying what are the adverse effects of increase in CPI and how to cope with them to make a better economic and social world.

Literature Review
What is Consumer Price Index?
The Consumer Price
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The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The CPIs are based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Consumer price indices (CPIs) are index numbers that measure changes in the prices of goods and services purchased or otherwise acquired by households, which households use directly, or indirectly, to satisfy their own needs and wants. A price index can be termed as a measure of the proportionate, or percentage, changes in a set of prices over time. The CPI reflects spending patterns. A consumer price index (CPI) measures changes in the prices of goods and services that households consume. It is said that one of the main reasons for compiling a CPI was to compensate wage-earners for inflation by the proportionate adjustment in their wage…show more content…
Increase in price of consumer goods is creating a gap between the two classes. In long run this may lead to a big problem for government as inequality between the two classes. At that time the Government will have to levy more taxes on the goods and services so that it can cope up with such sort of inequality. But it is not an easy task to levy more taxes on incomes. This type of strategies can create a political and economic uncertainty. Political uncertainty can be due to rude attitude of taxpayers against the Govt. who levy more taxes on their incomes and if we see the concept of more tax with economic point of view, more taxes leads to less production and the unemployment in that economy. It reduces the export of goods and services and again Government may be in a problem of increase balance of payment deficit. An increase in tax tends to cut in production quantity and leave an adverse effect on producers’ as well as consumers’ pocket. If it happens, he starts to reduce his expenditure which again leads to reduction in production of goods and services due to this unemployment takes place in the economy and a cause and effect cycle generates between increase in CPI and decrease in
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